TEJIMANDI Newsletter: Mirroring global sentiments

The markets have started the week on a bearish note, after staging a minor recovery last week. The Sensex lost 1,375 points, while the Nifty gave up 4.38%, led once again by the heavyweights of the banking sector.

During the day, Bajaj Finance, HDFC Twins, Tata Steel and ICICI Bank were the worst performers, while Cipla, Tech Mahindra, Nestle India, Dr Reddy's and Axis Bank led the fight for the bulls.The domestic market is mirroring global sentiments as the US and EU continue to report fresh Covid 19 cases. The IMF chief's statement that the world has entered a recession, worse than the great financial crisis of 2009, has made matters even worse.

Pharma companies across the world are working overtime to find a cure for Covid-19. Slow testing is a major challenge in detecting cases. While a vaccine remains a distant dream, a simplified testing method seems to be in the offing:

Abott India jumps on its parent's breakthrough

Shares of Abbott India rallied up to 19% after its parent firm Abbott Laboratories won marketing approval in the US for a coronavirus diagnostic test. The test can deliver results to patients within minutes and can be used by physicians' offices and urgent care clinics, as well as hospitals.

Key Takeaway: It is important to draw investor's attention here that enthusiasm about Abott India seems slightly misplaced considering that the discovery has been made by Abbott Labs which is a US-based company. Its success means little to the Indian entity, unless Abbott India starts delivering these testing kits in India.

Cement: COVID-19 to have significant near-term volume impact

The sudden outburst of Covid-19 has killed the rising demand for cement in its nascency. A robust trend was emerging in Jan-Feb for cement, with volume growth of 10-12% YoY in the East and 4-5% YoY in the West and Central regions. However, dispatches have stopped completely post 21st March and all major cement plants are shut now. Volume loss from lockdown could be ~40% in March and >60% in April.

Key Takeaway: For cement companies, while cash inflows have stopped, fixed costs continue on account of rent and staff salaries, creating liquidity stress. Hence this shutdown could take a toll on less efficient cement players.

Aviation: A thriving sector left completely crippled

The Aviation sector is also crippled by similar issues of volume decline and continued fixed expenses. As a result, industry leader Interglobe Aviation could see a loss of Rs 5,000 crores between the March and June quarters, eroding ~75% of its net worth. However, Interglobe continues to score over other players in the industry with its superior balance sheet, cost structure, large fleet and incremental orders.

Key Takeaway: As far as aviation in concerned, Indigo remains the favourite pick despite the adversity. However, the same can't be said about its peers who will certainly need a large bailout package given their inability to bear losses and cash burn after a point.